"Doc Fix" Problem is Rooted in Flawed Formula

Congress late last week agreed to extend the so-called “Doc Fix” for five months at a cost of $6 billion. But a permanent fix would cost around $210 billion over 10 years. And the longer we wait for a permanent solution, the more expensive it will be.

Instead of patchwork fixes, Congress needs to confront the underlying problem -- a flawed formula. At the heart of the debate is the sustainable growth rate (SGR) system -- the formula to determine how much doctors get paid for services under Medicare.

The SGR was created in 1997 to tie physician payments to physician costs and economic growth. It was a time of low health care inflation in the “managed care” era, primarily because physicians decreased the volume and complexity of their services. So the formula initially worked well.

But the formula eventually began calling for larger and larger cuts to meet the target. Beginning in 2003, Congress has repeatedly postponed the cuts, and so the target gets further and further away from actual reimbursement levels. It now would require a 21 percent cut in payments. But fixing it without increasing the deficit would require large cuts in other programs or tax increases -- not very popular alternatives.

Ideally, a fix would have been included in overall health care reform, and initially it looked as if that might happen. However, increased deficits from the fix and an unwillingness to support offsets caused it to be removed from the discussion. It is worth pointing out that the health care law's deficit reduction does not depend on the physician payment cuts actually being allowed to take place.